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Legal News | 18.06.21

The Enterprise Investment Scheme: Tax Relief for SME investors

The Enterprise Investment Scheme: Tax Relief for SME investors

The Enterprise Investment Scheme (EIS) encourages investment in small and medium sized businesses by providing tax relief to investors. In order for an EIS to apply there are a number of conditions that must be satisfied for both the company and the investor.

The Company

The criteria for the company are:

1. Permanently established in the UK
2. Not trading on a recognised stock exchange
3. Does not control another company other than qualifying subsidiaries
4. Is not controlled by another company
5. Does not expect to close after completing a project or series of projects
6. Trading for less than seven years
7. Carrying on a qualifying trade
8. Gross assets of less than £15 million before the share issue and immediately afterwards not exceeding £16 million
9. Fewer than 250 full-time equivalent employees when the shares are issued

The company must continue to meet the criteria for three years after the investment. The total amount a company can raise from venture capital schemes or other state aid during its lifetime is capped at 12 million and the maximum amount that can be raised in any year is £5 million.

The Investors

The criteria for the investors are:

1. Not already holding shares which are not SEIS or EIS shares, except for subscriber shares
2. Not be an employee, or a Director, unless complex Business Angel rules apply
3. Not, together with his ‘associates’ hold more than 30% of the company

Advance Assurance

You can ask HMRC to provide ‘advance assurance’ which is where HMRC assess the circumstances of the share issue and can tell you if it is likely to qualify for the tax relief under the EIS.

When you issue shares

The shares you issue must be paid up in full, in cash, when they’re issued and must be full risk ordinary shares that are not redeemable and carry no special rights to the company’s assets.

How the tax relief is claimed

In order to claim the tax relief the investor will require an EIS 3 Certificate from HMRC. The certificate can be requested once the shares have been issued and the company has traded for at least four months.

If you would like more specific advice on whether your company could benefit from an EIS scheme or if you have any other queries, then please get in touch with your usual contact, via our contact form https://wansbroughs.com/contact/ or email: emma.jewell@wansbroughs.com